China Commerce Ministry Says Country Should Buy More Gold, Diversify Dollar Holdings

Tyler Durden's picture

As we wrote recently, in what may become a rerun of the Rare Minerals export cut, after an abnormally long silence, China is finally starting to make noises in the gold market. As Bloomberg reported earlier, according to an article appearing on the website of the Chinese Ministry of Commerce, Meng Qingfa, researcher as the China Chamber of International Commerce said that China should buy more gold to
diversify its foreign exchange reserves. "China should increase its gold holdings if the country
aspires to “internationalize” its currency.
China has $2.6 trillion of foreign-exchange reserves,
mostly in dollar assets, Meng said. Such holdings will put China
at a disadvantage when the U.S. dollar depreciates, as is
inevitable amid a worsening U.S. debt problem, he said." While this is not an outright endorsement that the PBoC will begin to warehouse the precious metal, it is certainly an escalation in the war on words that the US and China have been engaging in for quite some time. The bigger problem is what may happen to the world gold market should China, which is now the world's largest producer of gold, decide to internalize its gold product output. Already the country's gold demand is surging. Should roughly 340 tons, or the amount of gold China makes each year, be withdrawn from supply, no amount of Goldman contemplation on the matter of physical ETFs will prevent a spike in the metal price.

More from Bloomberg:

Gold demand in China, the world’s largest producer, already gained in the first half of this year as government measures to cool the property market and falling equities spurred investment, the Shanghai Gold Exchange said July 7.

Sales of gold products such as bars and coins by China National Gold Group Corp., owner of the country’s largest deposit of the metal, jumped as much as 40 percent in the first half, Song Quanli, deputy party secretary at the company, said July 7.

China’s gold output may rise to 340 tons this year, from 314 tons last year, solidifying the nation’s position as the world’s largest producer, Zhang Fengkui, section chief of the raw materials department at the Ministry of Industry and Information Technology, said on Oct. 16.

To increase physical gold supply, the central bank also said on Aug. 4 that it will “increase the number of commercial banks who are qualified to import and export gold, based on the market demand situation.” The central bank also said it will support overseas investment plans by “large-scale” bullion companies by backing them financially.

At this point the only variable is the position of China's State Administration of Foreign Exchange or the custodian of all foreign reserves. In July, SAFE announced that U.S. government
debt has the benefits of “relatively good” safety, liquidity,
low trading costs and market capacity. 

Gold is unlikely to become a major holding in China’s
foreign reserves because of the metal’s big price swings and
lack of interest payments, SAFE said then.

Is it time for an update on SAFE's opinion on US Bonds... and on gold?

h/t Robert

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tmosley's picture

November 3rd will be all the more interesting with this news story.

ATG's picture

So gold goes down $-13?

Debt default deflation and palace coups beeches

Goldilocks's picture

Gold down $-13 (double negative) ... means it's up $13.

Captcha tells me so ...

... regardless, stock up on gold ... it's still a gift.

dlmaniac's picture

FT just published a pro-gold story. It's a warning sign that a rigging might be on the way.

morkov's picture

isn't "...backing them financially." at the end of the post a kind of new-speak for backing them with labour and re'sources?

what i mean is that "funding" those enterprises is the well established (since egyptian times) sweat and brow of actual people...what else could it be???

...just saying


Rahm's picture

Close, but no cigar.  Nice try, please play again.

tmosley's picture

Raht you say, round-eye?

BrosMacManus's picture

you no-a frunny.

gohd, beechez?

Huángj?n g?urìde?

Pool Shark's picture

Gord tu espensive! No bai dam ting!

Ragnarok's picture
OT: JPMorgan, HSBC sued for alleged silver conspiracy


NEW YORK | Wed Oct 27, 2010 5:46pm EDT

NEW YORK (Reuters) - JPMorgan Chase & Co and HSBC Holdings Plc were hit with two lawsuits on Wednesday by investors who accused them of conspiring to drive down silver prices, and reaping an estimated hundreds of millions of dollars of illegal profits.

TheGreatPonzi's picture

Lol. These investors don't know who they're attacking. Many have lost their lives trying to bring down the Crimex and the Rothschild gold fixing.

tmosley's picture

Morgan Stanley was successfully sued some years ago for not holding the gold or silver it was charging fees for.  I don't see why this lawsuit wouldn't work.

I mean, other than the fact that there is no rule of law in this country anymore.

TheGreatPonzi's picture

Sueing for false services charged is a thing ; directly attacking the gold/silver cartel is another thing. Tens of billions are at stake, and many political ramifications.

EscapeKey's picture

There certainly is.

It's just that it only applies to peasants.

tmosley's picture

Morgan Stanley was a peasant?

Truth is, the law only applies to those without "pull" in congress, or rather, so long as no-one else has more "pull" when your interests conflict.

Of course, there are times when your pull disappears totally in an instant, due to political convenience.  People like to think there is a real plan made by the people in control, but the truth is that we are ruled by people who have no clue, no plan, and no understanding of economics, history, or human behavior.


ATG's picture

Most cases against the gold and silver cartel were thrown out of court for no proper standing or jurisdiction

Kina's picture

This is big news to go with Chilton comments the other day and those concerning a judge who was quoted as saying he would never rule in favour of a claim. And this is what I said investors should do.


If you have lost money because of illegal activities of others and can show that they occured then you should bring a case. You can't say I won't bother since the judges will never support a claim against JPM HSBC. That is giving up on rule of law.


What should happen is more investors do the same and try and expose the cartel and CFTC.

The heat should be turned up on the CFTC and the manipulating banks. They must know their balls are on the line should there be a strong surge in gold and silver buying that breaks them. The ashes will be picked over and the corruption of the CFTC exposed.


This should be a major issue for ZH. Wonder if a forensic examination of silver and gold activity is possible and would expose the obvious?

DCon's picture

China makes Gold? How? Can I have the recipe?


The 22nd Prime's picture

Buy a mine. Smelt. Voila.

lewy14's picture

In[1]:= Prime[22]

Out[1]= 79

Just curious... is there something special about 79?

The 22nd Prime's picture

I run computer systems. Primes are used in encryption. Big ones. And I've always found primes fascinating.

But to answer your question, check the Periodic Chart.

lewy14's picture

Ah. I get it.

Primes are used in encryption. Big ones.

Job interview question: Mersenne Prime is

a) an M class planet in the Star Trek universe

b) a French cut of beef

c) a French porn star

d) a number one less than a power of two, divisible only by one and itself.

JuicyTheAnimal's picture

plus gold is pretty and you can drink it

Goldschläger is a Swiss cinnamon schnapps (43.5% alcohol by volume or 87 proof; originally it was 53.5% alcohol or 107 proof), a clear liqueur with very thin, yet visible flakes of gold leaf floating in it. The actual amount of gold is extremely small and serves as a sort of novelty: there is currently less than a tenth of a gram (0.1 g) of gold flakes in a 750 mL bottle of Goldschläger,[1] which, as of May 26, 2010, amounts to about 4.28 USD on the international gold market

putbuyer's picture

Here we go... Faber and ZH on the money

Buy the way, don't ZH have so many nice clickable advertizers. keep it going bitches

MiguelitoRaton's picture

Gold is the Kryptonite of the US, if China builds a credible store of the yellow metal, watch out.

midtowng's picture

Every year we here a quote out of China that they are talking about buying gold. Every year there is no follow through. And then couple years down the road China reports that it has bought another 400 tonnes of gold.

I don't think the quotes make much difference. China is going to do what China is going to do.

Paul E. Math's picture

Like Manny Ramirez: it's China being China.  What're-ya-gonna-do?

Bartanist's picture

Then China will be able to make big yellow boat anchors just like the US ... before the US gave away all of its gold to the Federal Reserve.

BrosMacManus's picture

The Treasury owns the physical, issuing paper credits to the Fed at 42-ish (FOFOA). As long as the Treasury doesn't call in the private holdings and ban/limit it's private ownership, keeping it down until we can swamp the Chicoms with paper is our only protection against the Chicom's mercantilism. Call me naive, but our goobermint can't be as derelict and ignorant as we all portray them to be...a sick part of me wants them to be behind the cash-4-gold schemes. Yeah, the US is no shining city on the hill, but imagine the Chicoms being the lone superpower. Every time I hear people say how smart and virtuous the Chicoms are, I wonder if they've ever heard of the Cultural Revolution.



Fred Hayek's picture

Exactly.  If only jackasses like Tom Friedman who sigh and get all tingly while contemplating China's dictatorship could be forced to live under it a little while, but not as Tom Friedman supercilious doofus from the new york times.  No, if only he could experience the Chinese government as just another journalist, one who seems to be prodding the government to change its policies.

Chartist's picture

So, is China working with the Fed to hold down the dollar to further prop our stock market so we feel rich enough to buy more of the rubber dog shit they export?

Turd Ferguson's picture

A must post every time China v US is mentioned:

sschu's picture

There is growing pressure from a number of interested parties NOT to do QEII.  It makes me think that there is are significant power centers lining up against Bennie's helicopter ride. 

I think Bennie has to punt, wait for things to get worse before they beg him to bail them out.  QEII is a non-event.


trav7777's picture

I hope you read around here.

Because it's CLEAR, crystal, that all of the export mercantilist nations are DIAMETRICALLY opposed to a weak dollar!

That means Germany, Brazil, and China predominantly, and Japan to a lesser extent.  They want to preserve the status quo of perpetual export surpluses meaning lots of jobs for their populations.

Of course they are against QE.  The US should just knuckle under and go deeper into debt to buy the shit they overproduce so that they can continue to have massive surpluses.

MeTarzanUjane's picture

Confucius say: Smoke more Hopium.

TonyV's picture

He also said:

Man who go to bed with itchy butt, wake up with stinky finger
Humpty Pundit's picture

Wouldn't be interesting if China decided to eventually back the Yuan with gold? What a reserve currency that would be. :)

trav7777's picture

Why the fuck would they do that???

Everything China is about is a perpetually weakening currency in order to maintain export growth.  Pegging to a commodity would destroy their economy.  They wouldn't be able to do their mercantilist ponzi with a gold standard.

MeTarzanUjane's picture

Maybe they do that because price of shiny go down? Maybe this help ahhh, export.

Spalding_Smailes's picture

Not enough gold to back world finance .... also .....


As my reference to the Japanese yen might suggest, I am pretty skeptical about the likelihood of this happening, at least with some of the more excited predictions.  So, by the way, is the ADB, whose recent report (“The Future Global Reserve System — An Asian Perspective”), suggests that by 2035, the RMB may comprise about 3 to 12 per cent of international reserves.  This is a pretty reasonable prediction, in my opinion, and far from the more feverish claims we see reported almost daily.

If the renminbi ever becomes a major trading or reserve currency, it is going to take a long time for this to happen and will require a radical transformation of the Chinese economy and the role of the government.  This may seem like a surprising statement.  After all nearly every week we see reports about a new breakthrough for the renminbi, and almost every day someone important somewhere speculates publicly about what the world will be like when (never if) the renminbi displaces the dollar.

But away from all “qualitative” arguments about why this is unlikely, and there are many, I think there is a problem with the arithmetic of reserve currency accumulation.  If the rest of the world is going to use the renminbi as a reserve or trading currency, clearly it needs a mechanism by which to accumulate renminbi.  This is something on which a surprisingly large share of people who talk about the future of reserve currencies don’t seem to focus.

Leave aside the fact that foreigners are prevented from having renminbi accounts and that it will probably be many years, if not decades, before the PBoC is willing to allow full convertibility, with limited government intervention and no control over the setting up and trading of its currency.  The world still needs a way to accumulate renminbi in order for it to be a major trading or reserve currency.

hamurobby's picture

Not enough gold to back world finance .....


Okay I will bite,

oh sure there is plenty plenty plenty of gold to back all of it twice, but not at this price.



Turd Ferguson's picture

If a gold-backed renminbi became the new global reserve currency, the Chicoms could jam that fucker right up the ass of every other country on earth, just like the US has done for the past 60 years. They could then deficit spend their way into a nice, little billion-person nanny state.

You're fooling yourself if you don't think that this is a possible endgame for them.

Spalding_Smailes's picture

Gold can not back a world currency only fiat. Thats why they dump'd gold and with this came forex trading ... They could not do this using gold as a backstop.


Forex Trading is being called 'today's exciting new investment opportunity for the savvy investor'. The reason is that the Forex Trading Market only began to emerge in 1978, when worldwide currencies were allowed to 'float' according to supply and demand, 7 years after the Gold Standard was abandoned. Up until 1995 Forex Trading was only available to banks and large multinational corporations but today, thanks to the proliferation of the computer and a new era of internet-based communication technologies, this highly profitable market is open to everyone. The Forex Trading Market's growth has been unprecedented, explosive, and continues to be unequaled by any other trading market.

Chartist's picture

Is the Yuan really propping up the US dollar?...How far would the buck fall if China totally decoupled?

HarryWanger's picture

Personally, would love to see my gold holdings rise higher. 

unum mountaineer's picture an interesting one harry. i like your avatar

Humpty Pundit's picture



I don't really think they would do that any time soon. By eventually I meant much later.

razorthin's picture

Go China!  Love the monetary schooling of our ball-less Fed and Treasury.  Is Mandarin difficult to learn?  How about German?